Question

Test Your Knowledge 9 Test Your Knowledge 1. Describe the basic accounting equation. c. Wages due to employees that had been previously recorded as a liabil- ity now paid in cash in the amount of $50,000 How does the double entry accounting system work? d. Bills submitted to insurance com- panies in the amount of $90,000 for services rendered to patients Cash payments of $60,000 received for services previously provided and billed $5,000 worth of additional supplies 2. What is the accounting journal? 3. Create a journal entry and a T-account e. entry for each of the following transactions: a. $30,000 worth of supplies pur- f. chased with cash $10,000 worth of supplies used to pro- vide clients with goods and services purchased on account b.

Answer 1

1 . Basic accounting equation is as follows

Assets = liabilities + capital

Double entry accounting system means every business transaction will have two effects in books of accounts. In accounting we records both the effects in books if accounts using journal entry i.e. why it is called double entry accounting system. Those two effects of an accounting entry in accounting language is called debit and credit . Note that for every debit entry or entries there will be equivalent amount of credit entry or entries.

Debits entries are those entries that account for following :-

A. Increase in asset

B. Increase in expense

C. Decrease in liability

D. Decrease in income

E. Decrease in equity

Credit entries have the following effects :-

A. Decrease in asset

B. Increase in liability

C. Increase in income

D. Increase in equity

2. Accounting is a long process comprising of various activities like recording the transaction, classification, summarization, preparing reports etc. The first step in the process of accounting is journalizing the transaction which is to be done in accounting journal.

3 . Following are the journal entries

S. No.	General journal	debit	credit
a.	Supplies Cash (To $30000 worth of supplies purchased )	30000	30000
b.	Supplies expense Supplies (To supplies worth of $10000 consumed )	10000	10000
c.	Wages payable Cash (Outstanding wages paid)	50000	50000
d .	Accounts receivable Fees earned (To bills with $90000)	90000	90000
e.	Cash Accounts receivable (To cash received for services previously provided and billed)	60000	60000
f .	Supplies Accounts payable (To supplies purchase on account )	5000	5000

Ledger accounts

Supplies

To cash	30000	by supplies exp	10000
To accounts payable	5000	by Bal c/d	25000

Supplies exp

To supplies	10000	by income statement	10000

Wages payable

To cash	50000	By Bal b/d	50000

Accounts receivable

To bal b/d	60000	by cash	60000
To fees earned	90000	by bal c/d	90000

Accounts payable

To bal c/d

5000

By supplies

5000

Cash

To accounts receivable	60000	By supplies	30000
		By wages payable	50000